Convention Centers, Stadiums,
Water Parks, and Restaurants
Recommendation
Cities and counties should not use taxpayer funds to compete with private sector convention centers, civic centers, sports stadiums, water parks, restaurants, and performing arts venues. These activities are inherently private, not public.
Background
Recently many North Carolina cities and counties have ignored the distinction between the public and private sector by funding outright or subsidizing functions that belong to the private sector. As later examples will demonstrate, city officials have poured money into nonessential city activities while essential services such as police, fire, and roads suffer.
These activities are often tied to the quest for "economic development" and justified by highly paid consultants who produce distorted and incomplete data that always conclude that the new subsidized facility will be an economic boon.
Information regarding other cities' experiences with construction cost overruns, budget subsidies, fewer visitors, and, more importantly, what would have happened if the money had remained in taxpayers' pockets is almost always missing from these studies. Informed decisionmaking requires that city councils and county commissions hire two consultants in order to have a more complete picture of potential costs and benefits.
Examples
Convention Centers
Convention centers, especially those intended for national conferences, have been struggling for business. Before September 11, only Las Vegas and Orlando broke even on their centers; since then, national attendance at Tradeshow Week 200 events lags at early 1990s levels. Yet consultants return rosy predictions that generate false confidence and immense taxpayer burden when these structures remain empty.
Charlotte and Asheville have made disastrous convention center decisions. Asheville's civic center had a predicted 2006 debt of $400,000; in past years (2000, 2002, 2004), debt passed $1 million. It lost sports teams in 2006, but the City Council continues to funnel it money. In 2007, the Council approved a $3.6 million six-year capital improvement plan.
Charlotte's $148 million facility should have had 751,000 attendees annually. Instead, it has had yearly deficits because it can attract big conventions only by using deep discounts and large subsidies. Its 2007 booking coup was the Shriners convention (25,000 visitors) — but they got a discount and a $50,000 subsidy from the Charlotte Regional Visitors Authority, which markets the center, to underwrite costs. Nevertheless, the center is due for $2 million improvements in fiscal year 2008.
Since visitor spending is the only economic benefit, cities enact "visitor taxes" on rental cars, prepared food, and hotels. But these taxes hurt residents who pay them (e.g., at a restaurant) and local businesses since taxes decrease tourism. Convention centers remain underutilized as county- and city-wide taxes pay for downtown benefits.
The private sector could fulfill any convention center task — without taxpayer money. The Koury Center in Greensboro is one example. It successfully competes with subsidized city convention centers while making a profit and paying taxes that support its competition.
Restaurants
In Winston-Salem, the city spent more than $600,000 in federal grant money in loans to 10 restaurants along "Restaurant Row." Loans from the city may cover up to 37.5 percent of "project cost," with a maximum of $150,000 allocated to each restaurant. The median loan is $82,000. Interest rates are low (3 percent to 5 percent); repayment, deferred two years. Yet two restaurants closed, defaulting on more than $176,000.
Raleigh spent $1,050,000 to fund The Mint, a "white tablecloth" restaurant in a city-owned building on Fayetteville Street. Of that, $800,000 converted the space from a bank to a restaurant; the remaining $250,000 matched the leaseholder's contributions on a $1-to-$2 ratio. (Every $2 the leaseholder spent the city matched with $1.) The Mint signed a nine-year, eleven-month lease with the city. Its first six months rent are free. Then it pays about $12,000 monthly. Raleigh will be an involved landlord: "substantial modifications" to The Mint’s "style, service level, menu items, etc." are subject to Council review.
City governments should not invest in private businesses, especially risky ventures. (Restaurants fail 60 percent of the time after three years.) With public dollars used, taxpayers subsidize these ventures. Business owners pay for competitors. This distorts the market: winners and losers are picked based on the City Council preferences—not consumer opinion.
Entertainment
Winston-Salem and Forsyth County will invest in a $22.6 million baseball stadium as part of a greater project to expand residential and commercial construction. With interest, the cost of the stadium will be $38 million. Officials plan to recoup it from ticket surcharges, land taxes, and sale of its current stadium. But the experience of other cities shows these plans rarely materialize.
Cabarrus County approved a five-year, $2.6 million "incentive package" to attract Great Wolf Resort, a hotel water park, to Concord. Concord added $1.5 million in five years of tax breaks. The resort is a 409-room hotel and water park — for hotel guests only. Neighboring towns are frustrated by the pressure on water supply. The complex will use 70,000 to 90,000 gallons of water per day; if the land were developed residentially, it would use 39,000 gallons in 111 homes.
Charlotte is home to the $38 million U.S. National Whitewater Center, which consists of a man-made river, trails, lodge, and rock-climbing center. Area governments guaranteed the center's loans and promised to cover some losses in the first seven years of operation. Predicted to have 20 percent profits in its first year, the center posted a $1.7 million loss; it covered operating costs, not debt service. Now local governments will pay. Mecklenburg County pledged $7 million ($1 million annual limit); Charlotte, $2 million; other Mecklenburg and Gaston County governments, $3 million.
City council members and county commissioners should not use taxpayer funds to pick winners and losers in the private sector. They have no expertise as venture capitalists. It is no surprise that the vast majority of these projects fail, leaving the taxpayers holding the bag.
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